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At The Money: Blurring the Lines Between Public and Private Investments · Masters in Business

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Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
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Speaker 2: There used to be a clear distinction between public and
0:32
Speaker 2: private companies. Firm would take years or even decades to grow,
0:37
Speaker 2: build their revenues and profits, and eventually tap the public
0:41
Speaker 2: markets to go national or even global. That doesn't seem
0:45
Speaker 2: to happen anymore. As endless amounts of capital sloshes through
0:50
Speaker 2: the system, More and more companies are staying private, but
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Speaker 2: there's a group of private investors that are accessing public
0:58
Speaker 2: capital through various rappers, including ETFs. To help us unpack
1:04
Speaker 2: all of this and what it means for your portfolio,
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Speaker 2: let's bring in Dave Nadig. He's president and director of
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Speaker 2: research at ETF dot Com, and he shares with us
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Speaker 2: how investors should navigate these public private hybrids. Dave is
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Speaker 2: also the author of the book A Comprehensive Guide to
1:22
Speaker 2: Exchange Traded Funds. So, Dave, there was once a very
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Speaker 2: bright line between public and private markets. Has that line
1:32
Speaker 2: disappeared or has it simply just moved into rappers that
1:35
Speaker 2: investors don't fully grock.
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Speaker 3: I think it's more the latter. I think the rules
1:41
Speaker 3: haven't really changed. I think that's important to point out here.
1:44
Speaker 3: It's not like we passed a law that' said everybody
1:46
Speaker 3: can get in. What's changed is that there's a willingness
1:49
Speaker 3: by the issuers of product to get a lot more
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Speaker 3: aggressive in what they're positioning as retail appropriate vehicles. So
1:58
Speaker 3: there's not a new rapper here. What there are are
2:00
Speaker 3: new ways of stretching the edges of rappers that have
2:04
Speaker 3: been around for you know, almost one hundred years at
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Speaker 3: this point.
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Speaker 2: So let's put some numbers on that. Since twenty ten,
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Speaker 2: Private Credit raised something like one point eight trillion dollars.
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Speaker 2: Every major firm, Blackstone, Apollo, KKR, Ares, Blue Oul, they're
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Speaker 2: building retail channels. There were three hundred and fourteen interval
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Speaker 2: funds tend or off for funds with two hundred and
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Speaker 2: seventy seven billion dollars in assets as of January of
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Speaker 2: this year, of twenty twenty six. A lot of chatter
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Speaker 2: that private is going after the four to one K market. Next,
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Speaker 2: what does all this capital mean to investors?
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Speaker 3: Well, you know, I think the thing investors need to
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Speaker 3: realize is that if you're the one being offered a product,
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Speaker 3: you need to ask yourself why right, if somebody's coming
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Speaker 3: to you and saying I want to give you access
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Speaker 3: to private credit or private equity. It's very smart to say,
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Speaker 3: who is selling this to me and why are they
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Speaker 3: selling it to me now? And unfortunately the real answer
3:07
Speaker 3: here is at the you know, look, we're in this
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Speaker 3: incredible bull market. Let's just be really honest. Things have
3:13
Speaker 3: been going up for a very very long time. And
3:16
Speaker 3: because of that, there is a lot of money that
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Speaker 3: is looking for exits. And at the end of every
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Speaker 3: cycle in my career, it is retail that is looked
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Speaker 3: at to be the exit. Whether that's buying beanie babies,
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Speaker 3: use cars, or stocks, it doesn't really matter. At the
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Speaker 3: end of the day, the retail investor is the one
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Speaker 3: that the quote unquote smart money, the big institutional money
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Speaker 3: is looking to unload their positions onto And so it's
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Speaker 3: not surprising to me that we're seeing a lot of
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Speaker 3: discussion around quote unquote democratizing private investing. Whether it's venture
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Speaker 3: capital or private credit, doesn't really matter, it's all the
3:53
Speaker 3: same thing. And so now that we just have to
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Speaker 3: accept that we're going to be marketed these products and
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Speaker 3: are the most part I think investors are not well
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Speaker 3: served by them, but I think that that's worth poking.
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Speaker 2: At So we should all take some advice from that
4:09
Speaker 2: great alternatives investor Groutcho Marx. I don't want to be
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Speaker 2: a member of any club that would have me exactly.
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Speaker 2: So let's talk a little bit about how this used
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Speaker 2: to look in the old days. Historically, companies would go
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Speaker 2: public to raise growth capital. Today it seems like a
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Speaker 2: lot of the best known private firms can stay private indefinitely,
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Speaker 2: and those that go public seem just to be reaching
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Speaker 2: for liquidly for insiders. Is that what's happening with these
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Speaker 2: various forty Act funds in all sorts of new rappers.
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Speaker 3: Yeah, there's two things going on here. So on the
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Speaker 3: one hand, eventually these private companies go public, and there's
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Speaker 3: a lot of effort to get investors involved in those IPOs.
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Speaker 3: That's the end state of what we're talking about. I
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Speaker 3: want to focus a little bit more on the beginning state.
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Speaker 3: How the actual money in private equity gets there, and
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Speaker 3: historically how that money ends up in a private company
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Speaker 3: is pretty simple. There's some pool of assets, generally it's
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Speaker 3: an LLC or a limited partnership, and it collects a
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Speaker 3: billion dollars of money from a bunch of rich people
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Speaker 3: and endowments and institutions and financial advisors, and that money
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Speaker 3: goes into a pool which then makes a bunch of
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Speaker 3: small investments in say fifteen different startups in Silicon Valley,
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Speaker 3: and the idea is that one of those hits big,
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Speaker 3: and then the payout from that is either that company
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Speaker 3: gets bought or it goes IPO, and all the investors
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Speaker 3: in that limited partnership then get a big check. That's
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Speaker 3: sort of the structure. How that little pool of private
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Speaker 3: money gets managed can really vary. It's very common for
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Speaker 3: it to be in just literally a limited partnership, but
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Speaker 3: the problem with that is you can only get so
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Speaker 3: many investors into it. When you want to get a
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Speaker 3: lot of investors, you have to go to some sort
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Speaker 3: of regulated vehicle, and then you end up in usually
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Speaker 3: a closed end fund of some kind, whether it's a
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Speaker 3: raided closed end fund, a non traded closed end fund,
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Speaker 3: an interval fund, a tender offer fund. There are all
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Speaker 3: sort of versions of the same things. They're funds that
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Speaker 3: are roach motels. Money goes in, money never comes out.
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Speaker 2: So define those various things. What's the difference between a
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Speaker 2: tender off of fund, a limited fund, a closed end fund?
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Speaker 2: For people who may not be hipped all these different acronyms.
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Speaker 2: What is going on in these and interval funds go
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Speaker 2: through the whole list.
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Speaker 3: Yeah, So really the main structure is the closed end
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Speaker 3: fund or the CEF, which is part of the forty Act,
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Speaker 3: just like an open ended fund, which is an ETF
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Speaker 3: or a mutual fund, same rules, same laws that have board
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Speaker 3: very similar structures. At the very very high level. The
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Speaker 3: biggest difference is a closed end fund is basically subscribed
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Speaker 3: to once. Like an IPO, you go out, you say,
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Speaker 3: I want to raise a billion dollars. You see if
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Speaker 3: you can get a bunch of people to give you
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Speaker 3: that billion dollars. Now, that is a closed pool of money,
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Speaker 3: and whether or not money ever comes out of that pool,
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Speaker 3: again depends on how the rules are written for that fund.
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Speaker 3: In the most open, in the most investor friendly version,
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Speaker 3: it tends to be a traded closed end fund, meaning
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Speaker 3: you can go to anise and you can get a
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Speaker 3: bid for it, and it maybe trading at a discount
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Speaker 3: or not. That's the version that For instance, Pershing Square
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Speaker 3: just launched. Pershing Square just filed PSUs, which is a
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Speaker 3: fairly traditional closed end fund. They raised a bunch of money.
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Speaker 3: Now it trades in the open market, and much to
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Speaker 3: the dismay of Bill Ackman, it's trading at a twenty
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Speaker 3: percent discount to what it's actually worth. That's pretty common
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Speaker 3: and closed end funds, because there's no liquidity. You can
7:42
Speaker 3: only buy it or sell it from other people who
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Speaker 3: happen to want it or own it.
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Speaker 2: And to clarify PSUs, are the holdings private or public
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Speaker 2: or both?
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Speaker 3: At the moment, that's really going to be public equities.
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Speaker 3: I think what people are trying to buy there is
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Speaker 3: Bill Ackman's high concentration, use some leverage, you know, to
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Speaker 3: get better exposures, special situations kind of investing. That was
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Speaker 3: a specific offering that he's tried. I think this is
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Speaker 3: his third tilt at this windmill and finally got this
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Speaker 3: one to close, albeit not with the pricing that he
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Speaker 3: probably would have hoped for. But that's actually a pretty
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Speaker 3: traditional closed end fund. You raise a bunch of money,
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Speaker 3: you trade it back and forth with your friends. Maybe
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Speaker 3: it throws off dividends, maybe it throws off a capital
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Speaker 3: gain someday if they have a big win. But you're
8:28
Speaker 3: you're never expecting to get your money out. You can
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Speaker 3: do the exact same thing and not have it ever
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Speaker 3: be traded. And that's a that's a non traded private
8:36
Speaker 3: equity fund, and.
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Speaker 4: That that's a pretty common thing. B reached.
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Speaker 3: A really well known ref fund is one of those
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Speaker 3: sort of non traded closed end funds, and we've had
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Speaker 3: a bunch of those launched recently, also really targeting private equity.
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Speaker 4: So that's another very common version of.
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Speaker 2: It, and a full disclosure. What I'm about to talk
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Speaker 2: about is something I own. Boas Weinstein has an ETF
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Speaker 2: CEFS closed end funds that he looks for these closed
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Speaker 2: end funds that are trading at a discount to NAV.
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Speaker 2: He buys them and then either agitates for the manager
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Speaker 2: to either buy back enough stock so it's trading at NAV,
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Speaker 2: or to break it up and just sell all the
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Speaker 2: pieces and return the money, or give the stock back
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Speaker 2: to the investors. Why do so many of these closed
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Speaker 2: end funds trade? It's such a discount that activists are
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Speaker 2: haranguing management for what essentially is a dollar trading at
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Speaker 2: seventy five cents.
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Speaker 3: Well, the discount comes because of what you just said.
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Speaker 3: There's no liquidity in there. There's no way to ever
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Speaker 3: extract real value from the fund. It's permanent capital largely
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Speaker 3: from the perspective of the issuer. That's why the issuer
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Speaker 3: loves it because they're just like, I have a two
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Speaker 3: billion dollar portfolio. I never have to worry about providing liquidity.
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Speaker 3: I'm fine. So if it trades the discount, that manager
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Speaker 3: really doesn't care. They're still getting paid based on NAV.
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Speaker 4: You know.
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Speaker 3: Often they're getting paid on NAV that's been goosed by
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Speaker 3: a bunch of leverage, so they still get paid. The
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Speaker 3: end investor is the one sitting here going why did
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Speaker 3: I pay?
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Speaker 2: Like?
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Speaker 3: Why am I sitting here at a discount? So that
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Speaker 3: R being out of the discount is as a classic tale.
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Speaker 3: People have been doing that since the sixties, and that
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Speaker 3: story for closed end funds.
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Speaker 2: Right ETFs, the R means that there's no discount because
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Speaker 2: you could always buy it and open the wrapper and
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Speaker 2: sell the stock. So it just seems weird that closed
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Speaker 2: end funds don't have the same. Yeah, it responds to R.
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Speaker 2: It's like an appendix on regulatory structure.
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Speaker 4: Right.
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Speaker 3: It's this like vestigial piece of flesh that's attached to
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Speaker 3: the forty Act. And that's why you mentioned at the
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Speaker 3: top of the show they're only a couple hundred of
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Speaker 3: these things right, And generally people only use the closed
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Speaker 3: end fund structure when they have one of a couple
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Speaker 3: problems to solve. One is they're buying stuff they literally
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Speaker 3: can't sell. So in the case of us VC, which
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Speaker 3: is the one that Angel lists and of all just launched,
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Speaker 3: I'm still trying to get my money into.
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Speaker 4: The whole idea.
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Speaker 3: There is that buying stakes and SpaceX and private companies
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Speaker 3: like that, they can't just liquidate that they need to
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Speaker 3: be able to close the liquidity gate. That's usually reason
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Speaker 3: number two, and reason number Reason number two is usually leverage.
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Speaker 3: So if you're trying to do some sort of sort
11:27
Speaker 3: of you know, like levering up bonds to try to
11:31
Speaker 3: get fifteen percent returns out of them, you know, those
11:33
Speaker 3: kinds of portable alpha strategies or risk parody strategies where
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Speaker 3: you really need to be able to go along and
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Speaker 3: short and get lots of leverage. You can do that
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Speaker 3: in the closed end fund structure, where you can't do
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Speaker 3: that in a traditional mutual funder ETF. So it does
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Speaker 3: solve a problem. The issue is it's very rarely a
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Speaker 3: problem the normal investor has.
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Speaker 2: So so you mentioned ps US, and I remember that
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Speaker 2: fee was not five BIPs. What was the fee on
11:59
Speaker 2: ps US?
12:01
Speaker 4: I think it's two percent.
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Speaker 2: Well that's a chunk of cash, but no, twenty, it's
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Speaker 2: not a two and twenty hedge fund.
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Speaker 4: It's just a two exactly.
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Speaker 2: And what about products like USVC. By the way, I
12:12
Speaker 2: love that these all have the name US in it.
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Speaker 2: I guess the plan is they'll do an overseas version
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Speaker 2: one day as well.
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Speaker 4: I guess. I guess.
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Speaker 3: Look, they're all all of these funds are generally pretty expensive,
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Speaker 3: you know, something like the USPE, which is the one
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Speaker 3: that's come from TAP, which is basically just going to
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Speaker 3: buy a bunch of private stuff that they get access
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Speaker 3: to that's charging two percent. But then they're what they're
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Speaker 3: buying is other funds, and so you get a lot
12:38
Speaker 3: of acquired fund expenses. So it's not uncommon to see
12:41
Speaker 3: these expenses creep up towards three or four percent when
12:45
Speaker 3: you start rolling all this stuff.
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Speaker 4: It's fees on fees. Because it's fees on fees.
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Speaker 3: Now, I should point out, though, the us VC is
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Speaker 3: the one that made a bunch of big splash lately
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Speaker 3: because they're basically saying the limits five hundred dollars, get
12:57
Speaker 3: your money in now, and their structure that is a
13:00
Speaker 3: bit more of an interval fund where once a quarter
13:03
Speaker 3: they're saying we'll give five percent liquidity to people who
13:06
Speaker 3: want to get out. That's again a fairly common structure,
13:10
Speaker 3: although none of those things are written in stone. They
13:12
Speaker 3: can say they're going to do that and then not
13:14
Speaker 3: do it, and there's no recourse.
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Speaker 2: But the USCC does not trade on any.
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Speaker 4: It won't trade anywhere. It's non traded.
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Speaker 3: So the only way you'll ever get your money out
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Speaker 3: of it is either they make a distribution because something
13:25
Speaker 3: big happened in the fund, or you sign up for
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Speaker 3: one of these quarterly windows where you can get five
13:30
Speaker 3: percent of your money out.
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Speaker 2: So some of these are private and hold non liquid assets.
13:38
Speaker 2: Some of these are public and hold public assets. Are
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Speaker 2: there public versions of these that hold private assets.
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Speaker 3: Well, the equivalent to that would be something like USPE,
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Speaker 3: which is the one that's coming from TAP. The idea
13:53
Speaker 3: there is that they're going to have it'll be trading
13:55
Speaker 3: on etchange. No, it's not an ETF. It's still a
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Speaker 3: closed und find but it'll be a trade to close fund.
14:00
Speaker 3: So we'll have these big discounts. The other version of
14:03
Speaker 3: this is you can take an ETF and use the
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Speaker 3: fifteen percent liquid bucket that all mutual funds are technically
14:09
Speaker 3: allowed to have, and you can try to use that aggressively.
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Speaker 3: There are ETFs doing that. XOVR is the big one
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Speaker 3: that has a fifteen percent SpaceX chunk in it. Ron
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Speaker 3: Baron's funds RONB has a big chunk of SpaceX in
14:22
Speaker 3: there right now. So there are more ETFs and mutual
14:25
Speaker 3: funds that are trying to do that, but it's obviously
14:29
Speaker 3: fraught with peril. You don't want to go too down,
14:31
Speaker 3: too far down that road, and then have a giant
14:33
Speaker 3: pile of redemptions you can't meet.
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Speaker 2: So here's the obvious question USPE or even better pershing
14:41
Speaker 2: square PSUs with Bill Ackman. These funds convinced savvy institutional
14:48
Speaker 2: investors and others to put a bunch of money in.
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Speaker 2: They launch at a couple of billion dollars. Wait, I
14:55
Speaker 2: could buy me some Bill Ackman at a twenty percent discount.
15:00
Speaker 2: How come more people don't see this and say, oh,
15:04
Speaker 2: I get I get to buy a premiere hedge fund
15:08
Speaker 2: manager at a discount. Nav what's the disconnect. Why haven't
15:13
Speaker 2: people themselves just said I want some of this is
15:18
Speaker 2: the expectation that, hey, if you want to be in
15:20
Speaker 2: Persian Square, that's where all the good stuff has taking place.
15:23
Speaker 2: But the PSUs just isn't going to have the closed
15:28
Speaker 2: in fund isn't going to have the same juice.
15:30
Speaker 3: Interestingly, part of the reason Actman had such a hard
15:33
Speaker 3: time getting this capital raised done over the years was
15:36
Speaker 3: exactly that argument. People were like, I want to be
15:38
Speaker 3: part of the management company. I don't want to own
15:40
Speaker 3: this garbage fund. And so what they actually floated was
15:43
Speaker 3: the combo platter where for every I think it's every
15:46
Speaker 3: four or five shares of you get one fund, you
15:49
Speaker 3: get one share of the of the big y of
15:52
Speaker 3: the main.
15:52
Speaker 4: So you're both an LP.
15:54
Speaker 2: So if this was a hedge fund, an LP and
15:57
Speaker 2: a GP at the same time, which is a very
16:00
Speaker 2: clever way to do it. How much of the overall
16:03
Speaker 2: GP did Ackman allow outsiders to buy or is it
16:08
Speaker 2: just built into the fund?
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Speaker 3: It's built into the structure of the fund. I don't
16:13
Speaker 3: know exactly.
16:13
Speaker 2: If you're not getting twenty percent of the gply.
16:16
Speaker 4: Not getting one hundred percent of it you're getting.
16:18
Speaker 2: One out of well, if you're buying it, you're only
16:20
Speaker 2: getting one out of five shares or whatever there is.
16:23
Speaker 2: But he could say, oh, we're gonna have one hundred
16:26
Speaker 2: million shares and I'm gonna put a million into this
16:28
Speaker 2: or whatever the float is.
16:29
Speaker 3: Right, I mean, this is part of the problem with
16:31
Speaker 3: these kinds of funds is that you ask why people aren't,
16:35
Speaker 3: you know, storming the gates to try to get into
16:37
Speaker 3: this thing. Well, you don't know that much about it, right,
16:39
Speaker 3: You're not getting regular reporting, it's not super transparent. You
16:43
Speaker 3: don't really know what the marks are. Obviously, if they're
16:45
Speaker 3: only holding public securities, you can impute the marks yourself,
16:48
Speaker 3: that's fine. But on anything that's private, you're just kind
16:51
Speaker 3: of guessing and taking their word for it for it. So, yeah,
16:54
Speaker 3: it's trading at a twenty percent discount to what you
16:57
Speaker 3: think it's worth, But is that really even what it's worth?
16:59
Speaker 3: And how do you value the GP component of this
17:02
Speaker 3: in that twenty percent discount, et cetera. So I think
17:05
Speaker 3: the combo platter of lack of transparency and lack of
17:09
Speaker 3: liquidity is enough to scare most rational investors out of
17:12
Speaker 3: something like this.
17:13
Speaker 2: So those are the downsides. There obviously has to be
17:17
Speaker 2: an upside. If someone like Bill Ackman is saying I
17:20
Speaker 2: have an idea and two billion dollars worth of smart
17:24
Speaker 2: money theoretically through some cash into that, what's the upside, Well.
17:29
Speaker 3: The upside is Bill Ackman could be right, right, Like,
17:32
Speaker 3: I mean, he runs high concentration, somewhat levered portfolios of
17:36
Speaker 3: I know, a dozen stocks.
17:38
Speaker 4: That's a high conviction bed.
17:39
Speaker 3: If he gets those dozen stocks right, he could absolutely
17:43
Speaker 3: blow away the market. I've fully acknowledged that their investors.
17:46
Speaker 2: And his track record has shown years it's not bad
17:49
Speaker 2: the lights out right, it's exactly not necessarily consistent, but
17:54
Speaker 2: mostly pretty good years and a handful of spectacular.
17:57
Speaker 4: Some flashes of genius. Right.
17:58
Speaker 3: So, like, that's why people are buying into these things
18:01
Speaker 3: is because they believe in this case, for you, Purring Square,
18:05
Speaker 3: they believe in Actman and his prowess and his access
18:08
Speaker 3: to insight information quote unquote or his access to insight
18:11
Speaker 3: that other people aren't getting in the case of something
18:14
Speaker 3: like USVC, I think what they're counting on is, oh,
18:17
Speaker 3: those are the Angel List guys. They're getting to see
18:20
Speaker 3: all of this deal flow from Silicon Valley way before
18:22
Speaker 3: everybody else. USVC is going to get these nice little
18:26
Speaker 3: slugs of whatever the next SpaceX or the next big
18:29
Speaker 3: IPO is going to be way before anybody else. That's
18:32
Speaker 3: not insane, right, I mean, I have some private investments
18:36
Speaker 3: of my own. I've choosen to be much more careful
18:38
Speaker 3: and pick exactly what I want to do. But I'm
18:40
Speaker 3: not going to sit here and tell people private investing
18:42
Speaker 3: is a terrible idea. Lots of people who made lots
18:45
Speaker 3: of money doing it. So that's the allure is, Hey, USVC,
18:49
Speaker 3: once they finally let people's money and then start investing,
18:52
Speaker 3: maybe they will in fact carry the whole tailwind of
18:56
Speaker 3: everything going on in Silicon Valley venture and you're five
19:00
Speaker 3: dollar becomes five thousand dollars.
19:02
Speaker 4: It's not impossible.
19:04
Speaker 2: Here's the math on private investing that I think a
19:07
Speaker 2: lot of people overlook. The median fund it does okay,
19:15
Speaker 2: doesn't do great. You're better off in the S and P.
19:17
Speaker 2: It's expensive, and it's a liquid versus the SMP. But
19:22
Speaker 2: a top decile fund does really well, diversified, non correlated
19:27
Speaker 2: and very often outperforms the index. The problem is unless
19:32
Speaker 2: you get into that I'll be generous and say top
19:34
Speaker 2: quartile fund the performance the juice isn't worth the squeeze.
19:40
Speaker 2: I love that expression. So given all of that, how
19:44
Speaker 2: do you think regulators should be treating this private exposure
19:48
Speaker 2: in these various public rappers.
19:51
Speaker 3: Well, so, my two big issues are liquidity and transparency.
19:55
Speaker 3: I think we should enforce the liquidity rules, right, which
19:58
Speaker 3: means that if you're sticking something in like an ETF,
20:01
Speaker 3: you should not be able to violate the fifteen percent.
20:03
Speaker 3: If you cannot trade it and get a price on
20:05
Speaker 3: it intraday, it is not liquid and you should not
20:08
Speaker 3: count it as liquid. So step one, we should actually
20:11
Speaker 3: enforce those liquidity rules.
20:13
Speaker 2: Intra day, meaning once a day or any time throughout
20:16
Speaker 2: the day.
20:16
Speaker 4: Well, you've got to at least be able to do
20:18
Speaker 4: it once a day, okay.
20:19
Speaker 3: And I would argue holding an intra day priced vehicle,
20:24
Speaker 3: you should probably be holding most of your assets in
20:26
Speaker 3: intra day price securities. Eighty yeah, eighty five percent, right,
20:30
Speaker 3: So like that seems pretty rational, and then you know
20:34
Speaker 3: the other you know, so that's the that's the liquidity
20:36
Speaker 3: side of it, and then the transparency side of it. Look,
20:38
Speaker 3: the problem in private equity and private credit. As everybody
20:42
Speaker 3: knows who's played in any of this, is that the
20:43
Speaker 3: marks don't matter, right. I mean, we've all seen those,
20:48
Speaker 3: those those pitch books that say, look, you should invest
20:51
Speaker 3: in privates. They're so stable they hardly ever go up
20:54
Speaker 3: or down.
20:55
Speaker 2: I love I Love Cliff Astness calls that volatility laundry,
20:59
Speaker 2: and it's exactly to perfect phrase.
21:01
Speaker 4: Right.
21:01
Speaker 3: So you're taking what would obviously be wildly volaile assets
21:06
Speaker 3: and you're marking them once a quarter, and you're marking them,
21:08
Speaker 3: you know, based on a lower vall metric on what
21:10
Speaker 3: it's comps did. So of course those are ridiculous and
21:14
Speaker 3: stupid marks. So that would be the next thing I
21:17
Speaker 3: would focus on is independent valuation agents for anything that
21:21
Speaker 3: is going to touch the public hand, right, if it's
21:24
Speaker 3: not in a prime, if it's not in a limited
21:25
Speaker 3: partnership where you've got your own governing documents, if you're
21:28
Speaker 3: going to touch the nineteen forty Act, we said independent verification,
21:31
Speaker 3: and we should at least publish valuation rules. That's the
21:35
Speaker 3: other big one is that they don't tell you how
21:38
Speaker 3: they value any of these things. That's the board. The
21:40
Speaker 3: board values whether or not your private thing is worth
21:43
Speaker 3: X or Y.
21:45
Speaker 4: I don't like that.
21:46
Speaker 3: I would like to know the rules. Why do you
21:48
Speaker 3: think SpaceX is worth one hundred and eighty five dollars
21:50
Speaker 3: instead of five hundred?
21:52
Speaker 2: Huh really really, really fascinating. Last question, five years from now?
21:58
Speaker 2: How do you think this public private distinction, these public
22:04
Speaker 2: wrappers around private investments? I love the phrase liquid alts
22:10
Speaker 2: kind of reminds me of the George Carlin word routine jumbo.
22:14
Speaker 4: Shrimp military intelligence.
22:16
Speaker 2: Right exactly, that's the exact routine. Listen, either it's private
22:20
Speaker 2: and ill liquid or public in liquid, but private and
22:23
Speaker 2: liquid doesn't really at that point, it might as well
22:26
Speaker 2: be public. Doesn't make any sense. How do you think
22:29
Speaker 2: this distinction is going to show up in the minds
22:32
Speaker 2: of investors and or regulators?
22:36
Speaker 3: I feel I don't want to be doomberg about this,
22:40
Speaker 3: but I feel fairly confident suggesting we're going to have
22:43
Speaker 3: some event in the next couple of years which is
22:47
Speaker 3: going to like pull the scales off our eyes around.
22:50
Speaker 2: Haven't we kind of had those sort of events already
22:53
Speaker 2: this year, We've had a bunch of privates.
22:57
Speaker 3: Very very thin like blue owls like in your BBC
23:00
Speaker 3: for redemptions.
23:01
Speaker 4: That's pretty that's that's right, that's course of business.
23:04
Speaker 2: You're talking not quite GFC, but in the same neighborhood.
23:08
Speaker 3: Yeah, I think we're going to have a few funds
23:11
Speaker 3: really have to to, you know, either close, whether it's
23:15
Speaker 3: a high profile private equity fund unwinding, whether it's some
23:19
Speaker 3: of the private credit stuff really coming home to roost. Now,
23:22
Speaker 3: initially it looks like we may have dodged some of that,
23:25
Speaker 3: Like the private credit stuff. I think there was a
23:27
Speaker 3: lot of concern that that was going to blow up
23:29
Speaker 3: the world. We seem to be being a little more
23:32
Speaker 3: rational about that. On the private equity side. You know,
23:35
Speaker 3: I think most of the money going into private equity
23:37
Speaker 3: is pretty high risk tolerance money anyway. So until we
23:41
Speaker 3: actually cross that rubicon of shoving this stuff in four
23:44
Speaker 3: o one k's, which I think is still going to
23:46
Speaker 3: be a while out, I don't think that's happening tomorrow.
23:48
Speaker 2: I hope that's a very far out.
23:51
Speaker 4: Yeah.
23:51
Speaker 3: So I think we'll have some high profile blow ups,
23:55
Speaker 3: but I think that they will be they'll be good
23:57
Speaker 3: for investors in the sense that they will wake us
24:00
Speaker 3: up and will be more skeptical, which I think is
24:02
Speaker 3: what's happened with private credit? There is not billions and
24:04
Speaker 3: billions and billions of dollars chasing private credit from retail
24:07
Speaker 3: right now, that's a good thing.
24:09
Speaker 4: I think we dodged a bullet.
24:10
Speaker 2: Well, well, there certainly was billions of dollars chasing.
24:14
Speaker 4: Twenty four and five millions. That's right.
24:17
Speaker 2: So to wrap up, for those of you interested in
24:21
Speaker 2: everything from liquid alts to interval funds, to M and
24:25
Speaker 2: A funds to what have you, you have to be
24:28
Speaker 2: aware of the downside risks. These things tend to be expensive.
24:33
Speaker 2: They often trade at a discount, assuming they trade at all.
24:38
Speaker 2: They are not especially transparent. There is a lot of
24:42
Speaker 2: good faith in relying on management to tell you what
24:45
Speaker 2: these things are worth. No conflicts there, and generally speaking,
24:51
Speaker 2: they seem to operate at a on a very different
24:55
Speaker 2: plane than publicly traded stocks and bonds. I'm Barry Ridolts.
25:01
Speaker 2: You're listening to Bloomberg's at the Money m